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The Future of Long-Term LNG Contracts

Author

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  • Hartley, Peter R.

    (Rice University and University of Western Australia)

Abstract

Long-term contracts between exporters and importers of LNG increase the debt capacity of large, long-lived, capital investments by reducing cash flow variability. However, long-term contracts also may limit the ability of the contracting parties to take advantage of profitable ephemeral trading opportunities. After developing a model that illustrates these trade-offs, we argue that increased LNG market liquidity is likely to encourage much greater volume and destination flexibility in contracts and increased reliance on short-term and spot market trades. These changes would, in turn, reinforce the initial increase in market liquidity.

Suggested Citation

  • Hartley, Peter R., 2014. "The Future of Long-Term LNG Contracts," Working Papers 14-022, Rice University, Department of Economics.
    • Handle: RePEc:ecl:riceco:14-022
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    File URL: http://economics.rice.edu/rise/working-papers/future-long-term-lng-contracts
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    Cited by:

    1. Oglend, Atle & Kleppe, Tore Selland & Osmundsen, Petter, 2016. "Trade with endogenous transportation costs: The case of liquefied natural gas," Energy Economics, Elsevier, vol. 59(C), pages 138-148.
    2. Atle Oglend & Petter Osmundsen & Tore Selland Kleppe, 2015. "Trade with Endogenous Transportation Costs: The Value of LNG Exports," CESifo Working Paper Series 5222, CESifo.
    3. Chi-Kong Chyong, 2015. "Markets and long-term contracts: The case of Russian gas supplies to Europe," Cambridge Working Papers in Economics 1542, Faculty of Economics, University of Cambridge.
    4. repec:osf:socarx:h2mv3_v1 is not listed on IDEAS
    5. Hamed Nikhalat-Jahromi & Panagiotis Angeloudis & Michael G H Bell & Robert A Cochrane, 2017. "Global LNG trade: A comprehensive up to date analysis," Maritime Economics & Logistics, Palgrave Macmillan;International Association of Maritime Economists (IAME), vol. 19(1), pages 160-181, March.
    6. Nikhalat-Jahromi, Hamed & Bell, Michael G.H. & Fontes, Dalila B.M.M. & Cochrane, Robert A. & Angeloudis, Panagiotis, 2016. "Spot sale of uncommitted LNG from Middle East: Japan or the UK?," Energy Policy, Elsevier, vol. 96(C), pages 717-725.
    7. Cho, Jaeyoung & Lim, Gino J. & Kim, Seon Jin & Biobaku, Taofeek, 2018. "Liquefied natural gas inventory routing problem under uncertain weather conditions," International Journal of Production Economics, Elsevier, vol. 204(C), pages 18-29.

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    JEL classification:

    • F0 - International Economics - - General

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